Technology

Deutsche Bank Has 5 Data Networking Tech Stocks With Big Upside Potential

Lee Jackson

Published: March 7, 2017 9:45 am

Last Updated: January 12, 2020 2:11 pm

While the Trump rally has been incredible, much of the move has been a result of big moves by high-dollar stocks. Investors looking for solid growth ideas should consider the huge possibilities for technology infrastructure as the massive growth in cloud computing, storage and security. Combine that with the huge growth in terabit optical, and you have the potential for some powerful gains over the next few years from a group of stocks that are still not expensive.

In a new Deutsche Bank research report from outstanding analyst Dr. Vijay Bhagavath, the case is made that service provider capital expenditures are increasing headed toward four critical silos.

1. Optical
2. Analytics
3. Artificial Intelligence
4. Automation Software

The analyst also feels that the telecommunication and cable companies are looking to monetize their information technology assets and holdings by offering customers services with higher margins like video, cloud security, hyper-cloud and more.

The analysts feel that five top idea stocks are the major benefactors of this explosive growth. All are rated Buy at Deutsche Bank.

Acacia Communications

This company had a red-hot IPO and has backed up sharply since a secondary offer last fall. Acacia Communications Inc. (NASDAQ: ACIA) is a leading supplier of high-speed coherent optical interconnect products to network equipment manufacturers, hyperscale cloud companies and service providers.

The company’s foundation is in its Digital Signal Processing (DSP) and a unique approach with its silicon-based photonic integrated circuit (SiPhi PIC). The company primarily combines the DSP and PIC to create modules, which are integrated into optical/networking equipment to provide high-speed optical interconnect.

The stock was hit yet again after posting solid fourth-quarter numbers but offering very tepid guidance for the first quarter. Many feel that this could be the best tech value now.

The Deutsche Bank price target is a stunning $100, and the Wall Street consensus target is $81.67. The shares closed Monday at $52.78.

Cisco

This is a top mega-cap technology stock pick at Deutsche Bank for 2017. Cisco Systems Inc. (NASDAQ: CSCO) designs, manufactures and sells internet protocol (IP) based networking products and services related to the communications and information technology industry worldwide.

It provides switching products, including fixed-configuration and modular switches, and storage products that provide connectivity to end users, workstations, IP phones, wireless access points and servers, as well as next-generation network routing products that interconnect public and private wireline and mobile networks for mobile, data, voice and video applications.

Deutsche Bank likes the company’s stellar balance sheet, and the ability for the company’s gross margins to move close to the 65% range on a consistent basis as it moves away from the legacy products sold for switching and routing. Cisco is another company that could benefit from the tax on overseas money being lowered as it has a whopping $70 billion in cash, 90% of which is overseas.

The analysts cited this in the report:

Cisco’s Service Provider business (~25% of fiscal year revenues) is starting to see orders pickup, driven mainly by new Software and SaaS product focus: e.g. MobileNetwork, End Point Security, monetized as Recurring Revenues.

They also think the stock is cheap at 11 times price to earnings on the firm’s fiscal 2019 estimates.

Cisco shareholders receive a 3.4% dividend. Deutsche Bank has a $40 price target, and the consensus target is $35.11. Shares closed Monday at $34.19.

Ciena

This company has had a very up-and-down 52 weeks, and it has frequently been the subject of takeover rumors. Ciena Corp. (NYSE: CIEN) is a vendor for high-capacity optical transport and Ethernet switching equipment to carriers, enterprises, cable operators and governments. It specializes in transitioning legacy communications networks to converged, next-generation architectures, capable of efficiently delivering a broader mix of high bandwidth services.

The company’s Converged Packet Optical segment offers networking solutions optimized for the convergence of coherent optical transport, Optical Transport Network (OTN) switching and packet switching. Its products comprise the 6500 Packet-Optical Platform, 5430 Reconfigurable Switching System, CoreDirector Multiservice Optical Switches and OTN configuration for the 5410 Reconfigurable Switching System.

The Deutsche Bank price target is $30. The consensus price target for the stock is $28.64. The shares closed most recently at $25.80.

Corning

This was a huge player in the fiber build-outs in the 1990s and may be ready to ramp back up for new deployments. Corning Inc. (NYSE: GLW) is one of the world’s leading innovators in materials science. For more than 160 years, Corning has applied its unparalleled expertise in specialty glass, ceramics and optical physics.

Its products enable diverse industries such as consumer electronics, telecommunications, transportation and life sciences. They include damage-resistant cover glass for smartphones and tablets; precision glass for advanced displays; optical fiber, wireless technologies and connectivity solutions for high-speed communications networks; trusted products that accelerate drug discovery and manufacturing; and emissions-control products for cars, trucks and off-road vehicles.

The analysts see the company as a winner in not only the new 5G wireless, but also strong Internet of Things applications. They feel both areas are infrastructure opportunities for the company given what they say is the robust demand for IoT connectivity and 5G infrastructure builds. The analysts also note cloud demand as a new growth driver for optical connectivity.

Corning investors are paid a 2.25% dividend. The $30 Deutsche Bank price target compares with the consensus target of $26.80. Shares closed Monday at $27.72.

Commscope

This company rounds out the five top ideas at Deutsche Bank. Commscope Holding Co. Inc. (NASDAQ: COMM) is a leading provider of antennas, cabling connectors and other connectivity equipment for enterprise and service provider customers. The company is a market leader in its three segments: Wireless, Enterprise and Broadband.

The company reported strong fourth-quarter results but guidance for the first quarter missed consensus estimates. 2017 guidance as a whole was soft but mostly in line. North American fiber and wireless demand drove the outperformance, and network densification continues to be a positive trend. International markets were weak but fiber, deleveraging, cost synergies and potential regulatory upside stories are intact.

The Deutsche Bank price target is $42, and the consensus target is $43.07. The stock closed Monday at $39.06.

The revolution in data networking will only continue to grow as consumer and business demand for all Internet of Things and beyond continues to manifest. While attractive now, these stocks are only suitable for accounts with a high risk tolerance, as earnings or guidance misses can cause big volatility.